Treasury Secretary Paul O’Neill upset some people recently simply by telling
the truth. He had the temerity to say that the Social Security Trust Fund has no
tangible assets. It’s empty.

Such candor is not rewarded in Washington, D.C., the balderdash capital of the
world. One of those who got upset was Rep. Charles Rangel, ranking Democrat on
the House Ways and Means Committee. Of course the Trust Fund has tangible assets, Rangel said. It’s full of government bonds. What could be more tangible than
that?

Rangel was either showing his penchant for demagoguery or his ignorance.
Tough call.

O’Neill is right. The Trust Fund is a figment of our collective imagination.
There’s no “there” there. It doesn’t exist.

Every cent that the American people pay in FICA payroll taxes is immediately
spent. Anything left over after the current retirees are paid off goes into the general
treasury where it is used, first, to make up any operating shortfall, and then to pay the
government’s creditors. The Social Security Trust Fund is credited for that money in
the form of nonnegotiable bonds that purportedly earn interest.

What if there was no trust fund at all? When FICA revenues fell short of retiree
benefits, as they will in about 15 years, the government would have four options: cut
benefits, cut other spending, raise taxes, or borrow.

But under the current system, when revenues fall short the government will still
have to cut benefits, cut other spending, raise taxes, or borrow.

In other words, there’s no difference between having the trust fund and not
having it.

It’s worse than a fiction. It’s a lie. Rangel may believe Social Security holds
tangible assets, but no one else who has taken a close look could possibly think that.
From the start, Social Security propagandists, led by Franklin Roosevelt, have tried
to make the American people believe the system was like any private-sector pension
program. They called taxes — i.e., forced exactions under threat of imprisonment —
“contributions” and conjured up the phony-baloney trust fund. They wanted us to
think that the money we “contribute” is put away for us individually, somehow
invested so that when we retire we can draw a return on our money.

Nonsense! There can’t be a return: our money is consumed and gone forever.
All the politicians really promise is that when we retire they will tax someone else and
give that money to us.

I guess you could say that Social Security really does hold tangible assets: the
taxpayers. But that sounds more like a hostage-taking or slavery than a pension
program.

They also made Americans believe that employers contributed to the system.
What a crock! It only appears that workers “contribute” about 6 percent of their
wages, matched by a like amount from their employers. In reality there is no way that
employers can make a contribution. Anything they pay is simply another form of
compensation to their workers. If there were no Social Security, that cash would go
directly to employees. The employer contribution is another illusion in a thoroughly
dishonest system.

It is true that the system “worked” for a long time. That is, retirees for many
years collected more in benefits than they ever paid in while working. That’s because
the postwar baby boom supplied many more workers than there were retirees and
politicians strove to buy votes from senior citizens by taxing workers ever more and
raising benefits ever higher. But that party is about to end. Before long there will be
about two workers for each retiree. Something will have to give. Will the working
generation put up with dramatically higher payroll or income taxes to support the
retired boomers? Or will they demand that other government spending be cut? As
the government consumes more and more scarce resources, how will Americans
respond to the resulting slower economic growth or even stagnation?

These vexing questions are what FDR and his New Deal bequeathed to us.
Maybe that new monument on the Washington Mall should have been dedicated to
Charles Ponzi. Reprinted With Permission

Sheldon Richman is senior fellow at The Future of
Freedom Foundation in Fairfax, Va., author of Tethered Citizens: Time to Repeal the Welfare State, and editor of
Ideas on Liberty magazine.